Restraint of Trade - Emerging Trends - Live Law

10/3/2017 Restraint Of Trade: Emerging Trends | Live Law
Restraint Of Trade: Emerging Trends

BY: VARUN SRINIVASAN
SEPTEMBER 26, 2016 11:25 AM
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1. Introduction
In the modern era, the concept of practicing ones trade, profession or business has evolved a long way
compared to how it was perceived in the yester years. The law has also as a matter of public policy opposed any
interference with respect to an individuals freedom of entering into contracts and on imposing restraints on
ones personal liberties. When the principle of restraint of trade was incorporated in the Indian Contract Act in
the year 1872, most individuals were either employed in the manufacture or sale of goods and other
commodities. But with the advent of various technological advancements coupled with the huge impact of
globalization in our economy with companies investing millions of dollars in R&D, information technology,
patents and the like, the logical question is shouldnt it be reasonable to impose certain restrictions against
employees from pursing their trade, profession or business if it impinges and affects the business or
relationship of the employer with its customers or if it means using to their advantage confidential
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time of joining any employment, but they mean nothing if the same cannot be imposed post an employees
term with the company has ended, especially considering the fact that s/he might have been privy to certain
confidential or sensitive information during his/her tenure. This piece, therefore, emphasizes the need to bring
in a change and do away with the theory of absolute restraint as discussed in Section 27 of the Contract Act,
and bring out a common ground to protect equally both the employers and employees rights.
1. History and Evolution of Section 27 in India
Section 27 of the Indian Contract Act, 1872 stipulates that every

agreement by which an individual is restrained from exercising any
lawful profession, trade or business of any kind, as void. However,
this Section lays down an exception wherein any agreement not to
carry on business of which goodwill is sold is not considered a
restraint. Section 27 which follows the Fields Draft Code for New
York, ironically was never adopted in New York but was adopted in
four American States (California, North & South Dakota, and Oklahoma). The original draft of the Indian Law
Commission did not contain any specific provision on the subject. The provision was incorporated in this Act
at a time between the resignation of the Indian Law Commission and the enactment. The object appears to
have been to protect trade. It has been said that Indian trade is in its infancy and the legislature may have
wished to make the smallest number of exceptions to the rule against contracts whereby trade may be
restrained (HaribhaiManekal v. SharafaliIsabki, (1897) 22 Bom 861 at 866).
The Section is general in its terms and unequivocally declares all agreements in restraint of trade void pro
tanto, except in the case specified in the exception. This Section lays down a very rigid rule invalidating
restraints, not only general restraints but also partial ones, and also restricts the exception to narrow limits.
Nevertheless, if the parties wish to implement it, they would not be acting illegally and the Court cannot
intervene to prevent them from doing so (Boddington vs. Lawton (1994) ICR 478).
Section 27 was enacted at a time when trade was underdeveloped and the object underlying the Section was to
protect the trade from restraints. But when trade in India has developed to a larger extent, there is no reason
why a more liberal attitude should not be adopted by acknowledging such restraints as reasonable. In fact, the
Law Commission of India recommended that this Section be amended to permit reasonable restraint on the
right to carry on trade, which unfortunately was never implemented by the legislature (Law Commission Of
India, 13 report, 1959, para 55). Even the Allahabad High Court has observed that it is unfortunate that Section
27seriously trenches upon the liberty of the individual in contractual matters affecting trade (Bholanath
Shankar Dar vs. LachmiNarain, AIR 1931 All 83). But a 3 Judge Bench of the Supreme Court of India in
Superintendence Co. of India Pvt. Ltd. v. KrishanMurgai,AIR 1980 SC 1717,while interpreting the contours of
Section 27, categorically arrived at the conclusion that the Section will have to be interpreted literally and no
two meanings can be attributed to it. According to the Court, all restraints on an individuals liberty to practice
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any trade, profession or business of ones choice is void and against public policy and the concept of
reasonableness & fairness will be not be applicable to agreements in India as compared to the United Kingdom.
Restraints During and Post Employment
Section 27 has labeled all restraints as void. But the common law principle and judicial interpretation have split
restraints into two halves; restraints applicable during employment and those applicable post-employment.
Uniformly throughout various jurisdictions in the world all restraints imposed on an employee during his
employment are prima facie valid and cannot be treated as void or against ones fundamental right to practice
any trade, business or profession. By principle, any agreement of service by which an employee binds oneself,
during the term of his/her agreement, not to compete with his/her employer, directly or indirectly, is not in
restraint of trade. This principle was validated by the Supreme Court in Niranjan Shankar Golikari vs. Century
Spg and Mfg. Co. Ltd., AIR 1967 SC 1098. In this case, the respondent company entered into a collaboration with
a German company, which agreed for a consideration, to transfer their technical know-how to be used
exclusively for the companys tyre cord yarn plant. The agreement provided that the company would keep the
secret during the period of employment. Three years after this, all technical information, knowledge, know-
how experience, data and documents would be passed by the German company to the respondent company.
The coventor was appointed as shift supervisor on the condition that he would have to sign a contract in the
standard form for the term of five years, which was accepted by him, the covenant being that the coventor
would devote wholly all his time and energy to the business and affairs of the respondent company and shall
not engage directly or indirectly in any business or serve in any capacity in any business whatsoever other than
that of the company, including his leaving the company before the expiry of the contract. The coventor in this
case, after receiving training, resigned and took a similar employment with another company. The Court while
granting injunction to the respondent company held that the coventor was restricted only to the period of
service not to work with anyone else and it was, therefore, a reasonable and necessary restriction for the
protection of the employers interest. The Court further held that there was nothing to show that the
enforcement of the covenant would lead him to a state of idleness or his being compelled to go back to the
employer and that it was not a valid consideration that in another employment the coventor would get a lesser
remuneration than the one paid by his new employee.
In contrast to the above principle expounded by the Court in Niranjan Shankar Golikari, the Supreme Court in
KrishanMurgai has had an opportunity to deal with covenants post-employment, which principle till date has
been followed by all subsequent decisions. The Court in this case dealt with the enforceability of a service
contract post-employment. As compared to the case in Niranjan Shankar Golikari, which dealt with a restraint
operating during employment, the restrictive covenant here was to operate once the employees service
terminated with the employer. The clause in this case read as follows That you will not be permitted to join
any firm of our competitors or run a business of your own in similar lines directly and/or indirectly, for a
period of two years at the place of your last posting after you leave the company.
The Court while analyzing in depth the various facts and clauses relating to the case coupled with the
interpretation of various national and international decisions arrived at the conclusion that all restraints
imposed on an individual, post his employment with the employer, is prima facie void and cannot be given
effect to.
Therefore, what can be inferred from the above two decisions and principles is essentially as to when the
breach of contract or service is said to have been committed. If the breach of contract is during the course of
ones employment with the company and if the terms of the contract are not too unreasonable, then under
such a circumstance law comes to the aid of protecting the employers interest as no person/individual can
exploit his contractual duties which he is obliged to perform or hold good for the reason of securing another
employment or higher pay. But per contra, as laid out in Section 27 of the Indian Contract Act and the
interpretation laid down by the Supreme Court in KrishanMurgai, all covenants that restricts anyone post-
employment is void, i.e., if the breach of contract or service even if committed post the termination or
cessation of ones employment cannot be a ground to challenge as the same is hit by Section 27 and it is an
individuals fundamental right to practice any trade, profession or business. All contracts which per se restrict
an individuals right to trade, profession or business can be identified as non-compete contracts or clauses.
In fact the Delhi High Court in Wipro Ltd. v. Beckman Coulter International SA.,2006 (3) ARBLR 118 (Delhi),
after a review of all the decisions of the Supreme Court and the High Courts, summarized the principles of
Section 27 as follows:
1) Negative covenants tied up with positive covenants during the subsistence of a contact be it of employment,
partnership, commerce, agency or the like, would not normally be regarded as being in restraint of trade,
business of profession unless the same are unconscionable or wholly one-sided;
2) Negative covenants between employer and employee contracts pertaining to the period post termination and
restricting an employees right to seek employment and/or to do business in the same field as the employer
would be in restraint of trade and, therefore, a stipulation to this effect in the contract would be void. In other
words, no employee can be confronted with the situation where he has to either work for the present employer
or be forced to idleness;
3) While construing a restrictive or negative covenant and for determining whether such covenant is in
restraint of trade, business or profession or not, the Courts take a stricter view in employer-employee contracts
than in other contracts, such as partnership contracts, collaboration contracts, franchise contracts,
agency/distributorship contracts, commercial contracts. The reason being that in the latter kind of contracts,
the parties are expected to have dealt with each other on more or less an equal footing, whereas in employer-
employee contracts, the norm is that the employer has an advantage over the employee and it is quite often the
case that employees have to sign standard form contracts or not be employed at all;
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1. Exceptions To The Principle of Restraint
An extensive analysis of the above points only goes to demonstrate that all agreements restraining an
individuals liberty to practice his trade, business or profession as void. This would thereby imply that all other
restraints such as non-solicitation, i.e. not to solicit customers or employees or non-confidentiality clauses, i.e.
not to disclose confidential information and the like, cannot per se be held to be void, even if imposed post
ones employment. Therefore, to have an understanding on how this principle operates, it is imperative to
demonstrate through application of various provisions of law and judicial verdicts the several other exceptions
that are available besides the one provided in the Section itself.
The terms business, trade and profession have been explained by the Supreme Court in Sodan Singh v. New
Delhi Municipal Committee,(1989) 4 SCC 155, as follows;
Profession means an occupation carried on by a person by virtue of his personal and specialized
qualifications, training or skill.. Trade in its wider sense includes any bargain or sale, any occupation or
business carried on for subsistence or profit, it is an act of buying and selling goods and services. It may include
any business carried on with a view to profit whether manual or mercantile. Business is a very wide term and
would include anything which occupies the time, attention and labour of a man for the purpose of profit. It
may include in its form trade, profession, industrial and commercial operations, purchase and sale of goods,
and would include anything which is an occupation as distinguished from pleasure.
In fact the Constitution of India itself provides protection to all individuals to practice their choice of trade,
occupation, business or profession as per Article 19(1)(g). But this is of course subject to the reasonable
restriction imposed in Article 19(6), which implies that no right is absolute. If this principle is adopted in
interpreting contracts, then why cant certain restrictions be imposed if they are reasonable in nature,
especially if they dont impinge upon ones right to practice any trade, profession or business? When an
employee signs a contract or agreement that very clearly mentions that s/he is not supposed to solicit any
customers of the employer either pre or post-employment or; not disclose any confidential information or
trade secret; or not use for his/her benefit or profit any copyrightable/patentable/trademarkable information
or data, then logically, all these points cannot be considered as restraints. The law only protects an individual
from practicing his trade, profession or business, but if the same is practiced while infringing someone elses
rights, it cannot and should not come under the purview of Section 27. When an employee for instance works
as a Project Manager and his role involves interacting and corresponding with all the customers of his
employer and is aware of all the pricing strategies, business models and the like, there is no reason why he
should not be restrained post-employment from either soliciting with them or exploiting the information,
especially considering the fact that he would not have acquired this information or relationship had he not
joined the employer. Similar is the situation of that of an employee dealing with confidential information or
trade secret, and the like, lets say in a pharma or IT company or the like. When companies spend millions in
investments, which are either used to build customer
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software, process, etc., the employee should not be allowed to hide under the garb of Section 27 and misuse it to
his/her benefit. The law should protect an employee only for his/her innate skills and that s/he has acquired
through experience and not for capitalizing on those things which s/he might not have a right over to start
with. Therefore, all covenants that do not restrict an individuals right to trade, profession or business should
not be void.
In fact, although the law has not evolved with the changing times and nor has the legislature taken any serious
effort in ensuring a revisit to this provision, especially after the Law Commissions recommendation dating
back to more than five decades, internationally most jurisdictions have evolved this concept quite early on
either by incorporating it in their laws or by applying judicial precedents. Even though in India there is still no
legislative change, the Courts have attempted to interpret this Section taking into consideration the varying
periods and provided certain exceptions. These can be categorized as follows;
Non-Solicitation of Customers and Employees
A non-solicitation clause prevents an employee or a former employee from indulging in business with the
companys employees or customers. When an employee signs this kind of an agreement or clause, s/he thereby
agrees not to solicit the employees or clients of the company for his/her own benefit during or after his/her
employment. This principle of interpreting solicitation clauses was initially dealt by the Delhi High Court in
Wipro Ltd. v. Beckman Coulter International SA. In this case, Wipro worked as a sole and exclusive canvassing
representative and distributor for Beckman Coulter International, S.A., for a period of 17 years. Subsequently,
Beckman Coulter decided to operate directly in India and issued advertisements seeking employment from
people and giving preference to candidates having experience in having handled Beckmans or similar
products. Wipro approached the Court seeking injunctive relief and damages alleging that such advertisements
were in violation of the non-solicitation clause signed between the parties. The Court after considering all the
relevant facts and circumstances arrived at the conclusion that since the restrictions had not been imposed on
the employees but on Wipro and Beckman Coulter, Section 27 would not be attracted and thus the agreement
was held not in restraint of trade.
Similarly in Desiccant Rotors International Pvt. Ltd v BappadityaSarkar&Anr.,CS (OS) No. 337/2008 (decided
on July 14, 2009), the Delhi High Court while dealing with the enforceability of solicitation clauses, allowed an
injunction against the manager prohibiting him from soliciting Desiccants customers and suppliers to stand in
effect. The Court however, held that a marketing manager could not in the course of his employment be
deemed to possess or be privy to any confidential information and that his written declaration to that effect in
his employment agreement was meaningless and subsequently rejected Desiccants claim to enforce the
confidentiality obligations on the manager.
The Calcutta High Court in the case of Embee Software Pvt. Ltd. v. Samir Kumar Shaw,AIR 2012 Cal 141, has
brought out the growing importance in protecting client information. The Court while granting injunctive
relief held that acts of soliciting committed by former employees takes such active form that it induces the
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contract with the former employer and enter into a contract
with the former employee, or prevents other persons from entering into contracts with the former employer
cannot be permitted. The Court in fact went on to opine that client information under certain circumstances
can even be considered as a trade secret and therefore, be of high value to an employer. This decision in fact,
echoes the decision in Crowson Fabrics Ltd. v. Rider,[2007] EWHC 2942, wherein the English Courts held that
acts of an employee by retaining various documents such as customer and supplier contact details during
employment did not amount to a breach of confidentiality, but such illegitimate actions constituted a breach
of employees duty of fidelity.
In FLSmidthPvt.Ltd. v M/s.SecanInvescast (India) Pvt.Ltd., (2013) 1 CTC 886, the Madras High Court while
dealing with a non-solicitation clause with the customers held that merely approaching a previous employers
customers does not amount to solicitation until orders are placed by such customers based on such approach.
The Madras High Court laid down the standard to establish non-solicitation:
solicitation is essentially a question of fact. The appellant should prove that the respondent approached
their erstwhile customers and only on account of such solicitation, customers placed orders with the
respondent. Mere production of quotation would not serve the purpose. It is not as if the appellant is without
any remedy. In case the Court ultimately holds that the appellant has got a case on merits, they can be
compensated by awarding damages. The supplies made by the respondent to the erstwhile customers of the
appellant would be borne out by records. There would be no difficulty to the appellant to prove that inspite of
entering into a non-disclosure agreement, respondent have solicited customers and pursuant to such
solicitation they have actually supplied castings. When there is such an alternative remedy, question of issuing
a prohibitory injunction does not arise.
The principles mentioned above were similarly resonated in the case of Vogueserv International Pvt. Ltd. Vs
Rajesh Gupta,CS(OS) 1436/2012, wherein an injunction was granted by the Delhi High Court restraining
former employees from soliciting with customers.
Non-Disclosure of Confidential Information/Trade Secrets
Similar to the non-solicitation clauses restraining an employee from approaching customers and employees,
there are various instances where an employee is required take all reasonable steps in ensuring the confidential
information is maintained with the utmost secrecy, except and to the extent when disclosure is mandatory
under any law in force. In Escorts Const. Ltd v. Action Const.,AIR 1999 Delhi 73, the Delhi High Court
restrained Escorts from manufacturing, selling or offering for sale the Pick-N-Carry Mobile Cranes that were a
substantial imitation or reproduction of the industrial drawings of the Plaintiffs, or from using in any other
manner whatsoever, the technical know-how. Similarly, in Burlington Home Shopping Pvt. Ltd.v.
RajnishChibber,61(1995)DLT6, the Delhi High Court again restrained an employee from carrying on of any
business including mail order business by utilizing the list of clientele or customers included in the database of
the petitioner. The Court went on to hold that such database in fact amounted to a copyright and thereby
deserved protection.
In Diljeet Titus v. Mr. Alfred A. Adebare and Others,2006 (32) PTC 609, the defendant was an advocate working
at the plaintiffs law firm. On termination of employment, the defendant took away important confidential
business data, such as client lists and proprietary drafts, belonging to the plaintiff. It was contended by the
defendants that they were the owners of the copyright work as it was done by them during their employment
and the relation between parties was not that of an employer and employee. The Delhi High Court while
rejecting this plea went on to hold that the plaintiff had a clear and definitive right in the material taken away
by the defendant and accordingly restrained the defendant from using the information taken away illegally.
The essence of this decision is that the restraint imposed on the defendants was only with respect to not using
the confidential information they acquired from their employment and not with respect to carrying on a
similar service. It should be noted that the Delhi High Court did not prohibit the defendants from carrying on
a similar service. The Court felt that such a partial restraint was a necessity in protecting the plaintiffs interest
else, it would lead to him suffering an irreparable loss or injury.
Similarly, the Calcutta High Court in Hi-Tech Systems & Services Ltd vsSuprabhat Ray &Ors.,G.A.No. 1738 of
2014 &C.S.No. 192 of 2014, while dealing with an injunction application in order to restrain the respondents
from divulging or using in any manner the petitioners computer database containing confidential information
and trade secrets and to procure a breach of contract of the plaintiff with its existing customers or suppliers,
held as follows:
A trade secret or a business secret may relate to financial arrangement, the customer list of a trader and some
of the informations in this regard would be of a highly confidential nature as being potentially damaging if a
competitor obtained such information and utilized the same to the detriment of the giver of the information.
Business information such as cost and pricing, projected capital investments, inventory marketing strategies
and customers list may qualify as his trade secrets. The Court needs to find out if the informations that were
acquired during the course of their employment are now being used as the spring board to enable the said
respondents to exploit such database in the course of their business.Since I have held that the said respondents
have acted in breach and are in the process of utilizing such trade secrets and confidential informations the
said respondents are restrained from acting as a selling agent of Hora, Germany or Sales representatives for
three years from January, 2014.
Application of Criminal Laws
Any breach of the contractual provisions signed by the employee attract appropriate civil remedies either in
the nature of specific relief, i.e., specific performance of the contract/agreement or by way of granting
injunctive relief or awarding of damages to the extent of loss or injury suffered. But this does in no way imply
that there are only civil remedies available at the disposal of an employer against an employee. The criminal
legislation in India also comes to the aid of employers who are inclined to take appropriate and necessary legal
action, which thereby would attract penal consequences, for all those found guilty of any illegality or
malpractice. There are a plethora of provisions either it be in the Indian Penal Code of 1860 or the Information
Technology Act of 2002 to punish all those wrongdoers in the case of breach of confidentiality
India Ceases To Be Truly A Lawyer On This Gandhi South Asia and disclosure
provisions and thereby attract and allow appropriate criminal prosecution and imprisonment or fine or both.
As per the Information Technology Act, remedies have been provided to deal with hacking, causing damage to
computer system, tampering with computer source document, punishment for violation of privacy policy, etc.
and these may also be considered by the employer as remedies against the employee in case of breach of
confidentiality and disclosure provisions.
The Supreme Court in PyarelalBhargava v. State of Rajasthan,AIR 1963 SC 1094, dealt with the issue of an
alleged theft of confidential information by an employee who had removed it from the government
department and passed it along to a friend who in turn substituted the documents. This friend further removed
certain documents while substituting them with others and returned the file the next day. The Court while
convicting the employee for theft under Section 378 of the Indian Penal Code held that even a temporary
removal of documents with a dishonest intention could cause loss or harm and hence, would be considered as
theft.
In case of Abhinav Gupta v. State of Haryana,2008 CriLJ 4356, the accused was an ex-employee of a Company
and had resigned and joined another Company after his final clearance. During his course of exit interview he
had continuously maintained that he would not be joining any company which was in direct competition with
his employers. He further agreed that all the confidential information acquired by him during his tenure at
work shall be kept confidential at all times. However, two weeks later, it came to the knowledge of his employer
that he had joined the competitor. It was also later discovered that the accused had transferred or downloaded
various confidential information of his employer into his personal e-mail id. Screenshots of the mail id of the
accused was produced by employer which showed that such information was passed on to the competitor
company. The Court while holding that the actions of the employee amounted cheating and dishonestly
inducing of property under Section 420 and criminal breach of trust under Section 406 of the Indian Penal
Code also amounted to the act of hacking as under Section 66 of the Information Technology Act.
Other Exceptions
The Supreme Court had in fact derived an exception that related to the restrictions on a franchisees right to
deal with competing products during the subsistence of the franchise agreement. The Court in M/S Gujarat
Bottling Co. Ltd. vs. The Coca Cola Co., 1995 (5) SCC 545, held that some terms of commercial contracts have
passed into the accepted currency of contractual or conveyancing relations, and aim at promoting trade and
business. Such terms due to their nature and purpose cannot be said to enter into the field of restraint of trade.
The Court while arriving at its conclusions held that a negative stipulation in a franchising agreement,
restraining the franchisee from dealing with competing goods, during the subsistence of the franchising
agreement, could not be regarded as restraint of the franchisees right to trade.
Besides the exceptions derived from various judicial perceptions and interpretations, the Competition Act,
2002 also deals with Anti-Competitive Agreements under Section 3. Section 3(1) & (2) are as follows;
(1) No enterprise or association of enterprises or person or association of persons shall enter into any
agreement in respect of production, supply, distribution, storage, acquisition or control of goods or provision
of services, which causes or is likely to cause an appreciable adverse effect on competition within India.
(2) Any agreement entered into in contravention of the provisions contained in sub-Section (1) shall be void.
What can be seen is that Section 3(1) is very similar in its intentions when compared to Section 27 of the
Contract Act. But although being similar in nature, the Act has also provided for exceptions to such
agreements which are mentioned in Section 3(5) as follows:
(5) Nothing contained in this Section shall restrict
(i) the right of any person to restrain any infringement of, or to impose reasonable conditions, as may be
necessary for protecting any of his rights which have been or may be conferred upon him under:
(a) the Copyright Act, 1957 (14 of 1957);
(b) the Patents Act, 1970 (39 of 1970);
(c) the Trade and Merchandise Marks Act, 1958 (43 of 1958) or the Trade Marks Act, 1999 (47 of 1999);
(d) the Geographical Indications of Goods (Registration and Protection) Act, 1999 (48 of 1999);
(e) the Designs Act, 2000 (16 of 2000);
(f) the Semi-conductor Integrated Circuits Layout-Design Act, 2000 (37 of 2000);
(ii) the right of any person to export goods from India to the extent to which the agreement relates exclusively
to the production, supply, distribution or control of goods or provision of services for such export.
What can be seen from the above points is that although it can be argued that most of the exceptions dealt
with are rendered by way of judicial interpretation, Section 3(5) of the Competition Act, which is a subsequent
legislation to the Contract Act, clearly has taken into consideration the changing times and have recognized
and protected the employers interest. Therefore, the Courts while interpreting Section 27 of the Contract Act
should also make reference to Section 3 of the Competition Act and see if the same is applicable to the facts
and circumstances of a particular case.
1. Conclusion: The Way Forward
What can be discerned from the above observations is that the misconception that restraint as per Section 27 of
the Act is applicable as a general rule in all cases post the cessation of the jural relationship between an
employer and employee is highly inappropriate and misconstrued. A plain reading and application of the
Section only goes
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Discourse in
choice of profession, trade or business, specifically only post-employment; irrespective of whether the
employee leaves voluntarily or as a result of his services being terminated. Therefore, with the changes in these
turbulent times, the intervention of the judiciary in taking cognizance of the exceptions, as extrapolated above,
as legitimate grounds to award protection is very much appreciated, but having said this, it is about time the
legislature takes accountability in assessing the significance of this Section and ensures that it maintains its
ideals in projecting India as a Global Investment Hub for many companies. By revising this particular provision
to include the principle of reasonableness and fairness and allowing partial restraints to exist post-
employment, would only go a far way in protecting trade and business India, considering the present era is
experiencing phenomenal changes in the economy, industrial processes and technological advancements. The
parliament while having a relook at this Section should draw a middle playing ground and equally protect both
the employers and employees interests. With the Law Commission of India having made its
recommendations more than five decades back, it is about time the government seriously contemplates
making relevant changes, especially considering that internationally various countries have already
incorporated these changes in their respective laws long back. The Supreme Courts approach in Percept
DMark (India) Pvt. Ltd. v. Zaheer Khan &Anr.,AIR 2006 SC 3426, seems to be the most appropriate approach to
address concerns arising out of restrictive covenants:
Somewhere there must be a line between those contracts which are in restraint of trade and whose
reasonableness can, therefore, be considered by the Courts, and those contracts which merely regulate the
normal commercial relations between the parties and are, therefore, free from doctrine..
The relevance of inserting restrictive covenants in all kinds of contracts has evolved over a period and gained
significant importance specifically due to growing trend of employer-employee disputes. In such times, it is
only apt that such a legal hurdle does not come in the way of contracts/agreements signed and entered by
individuals of their free will and volition.
Varun Srinivasan is a Senior Associate, with the law firm NVS & Associates, Advocates
& Legal Consultants; Co-Revising Editor 25thEdn.Tannans Banking Law & Practice
published by Lexis Nexis& Member, Chartered Institute of Arbitrators (London). (The
full text of this piece is available at (2015) 7 MLJ 49)a
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Topics: Application of Criminal Laws | Restraint Of Trade | Section 27 of the Contract Act | World Trade Organisation


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10/3/2017 Restraint Of Trade: Emerging Trends | Live Law

Restraint Of Trade: Emerging Trends

SEPTEMBER 26, 2016 11:25 AM

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Change Font Size

1. History and Evolution of Section 27 in India

Section 27 of the Indian Contract Act, 1872 stipulates that every

Restraints During and Post Employment

not in restraint of trade, business or profession.

1. Exceptions To The Principle of Restraint

Non-Solicitation of Customers and Employees

Non-Disclosure of Confidential Information/Trade Secrets

Application of Criminal Laws

(5) Nothing contained in this Section shall restrict

(a) the Copyright Act, 1957 (14 of 1957);

(b) the Patents Act, 1970 (39 of 1970);

(e) the Designs Act, 2000 (16 of 2000);

1. Conclusion: The Way Forward

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When The Bar Council Of Remembering Gandhiji As Human Rights Discourse in

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